FHA loan rules permit single-family mortgages on suburban homes, mixed-use properties that meet FHA loan requirements, townhomes and condominiums. For a condo to qualify for an FHA mortgage, it must be on or be added to a list of FHA approved condo projects.
But some borrowers aren’t sure what constitutes a condominium–what do FHA loan rules recognize as a condo unit as opposed to other types of property? As stated above, FHA requires condo units to be approved. The rulebooks states, “FHA must approve condominium projects before a mortgage on an individual condominium unit can be insured.”
The rules for FHA loans on what constitutes a condo are found in HUD 4155.1, Chapter Four Section B under the heading “Requirements For Condominium Eligibility”. Those rules begin by stating:
“A condominium is a multi-unit project that
• has individually-owned units, which may be either
− attached in one or more structures, or
− detached from each other, and
• is essentially residential in use (for FHA purposes).”
The ‘residential” requirement is an important one to keep in mind–borrowers should know that single-family FHA mortgages are for residences to be occupied by the borrower for his or her personal use. FHA loan rules also add:
“A condominium regime is created by state or local law and is characterized by fee simple ownership of a unit which is defined in the condominium documents, together with common areas. The property interest in these areas is both common and undivided on the part of all unit owners, each of whom belongs to the Homeowners’ Association (HOA) that typically maintains the property and collects assessments or dues from each unit owner.”
Borrowers who find condo units for sale should discuss the property with the loan officer to see if the project is on the FHA approved list or needs to be added. The lender can help with getting a project added to the approved list if the condo project meets FHA requirements.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.